The lower-of-cost-or-market basis of valuing inventories is an example of _____ a

Marketing Dec 22, 2020

The lower-of-cost-or-market basis of valuing inventories is an example of _____

a. comparability.

b. conservatism.

c. the cost principle.

d. consistency.

Expert Solution

Answer: b. conservatism.

The conservatism principles relates to the process of not overstating assets, revenues and income and at the same time not understating liabilities, expenses and losses. This supports the requirement that financial transactions shall be presented fairly in all material respect, and are free from error and material misstatements. Considering that prices of inventories are subject to frequent fluctuations, it would be more reliable and applicable to value it using the lower of cost and net realizable value.

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